Retirement Plan Industry Update

DOL Fiduciary Rule Update

Financial CHOICE Act would nullify the rule and prevent DOL from prescribing a new one until SEC issues a final fiduciary rule

House and Senate bills would repeal the rule and allow conflicts to be solved by disclosure

What is required effective July 9, 2017?

A person or organization will need to act as a fiduciary when making any of the following recommendations, if for a fee:

Investment of plan or IRA assets

Distributions from, or rollovers to, a plan or IRA

Management of securities or other property, including,

A person to provide investment advice or investment management services

Selection of account arrangement (e.g., brokerage v. advisory)

Investment policies or strategies

Best Interest Contract (BIC) exemption is available, but firms only need to comply with the “impartial conduct standards” during the transition period

Give advice in the best interest of the retirement investor

Charge no more than reasonable compensation

Make no misleading statements

Effective January 1, 2018, all requirements of the BIC are scheduled to take effect, including:

Written agreements with IRA holders

Substantial disclosures to retirement investors

(J.P. Morgan, 2017)

Are Your Retirement Plan Records Being Kept?

In the Estate of Barton v. ADT Sec. Servs. Pension Plan, the courts have ruled that it is the plan sponsor’s responsibility to keep retirement plan records until all liabilities have been distributed. It is required and essential for sponsors to work with record keepers to ensure that a plan’s retirement data is organized, accurate, and current.

Mary Henderson, CEBS, ERPA, QPA, recently wrote, “The IRS and federal tax regulations require that records be retained as long as their contents may become material in the administration of any internal revenue law. As a result, records for retirement plans should be kept until all benefits have been paid, the trust has been dissolved, and sufficient time has passed that the plan will not be the subject of an audit.”

The following is a summary of the Barton case:

Bruce Barton, former employee of ADT, sought retirement benefits from ADT 24 years after he left the

Barton provided paystubs, W-2s, employee identification, and

The California U.S. District Court’s initially ruling declared that the claimant (Barton) was likely entitled to pension benefits but lacked access to key

Barton appealed to the 9th Circuit Court, where the decision ultimately came down to which party was responsible for keeping plan eligibility, participation, and vesting records.

Appellate court found that the employer (ADT) was in a better position to maintain and provide necessary records to prove benefit

(Kurdek, 2017)

IRS Pressures Employers to Adopt Only Pre-Approved Plans

The IRS is modifying the pre-approved letter program by combining the master and prototype (M&P) and volume submitter (VS) programs into a new opinion letter. The IRS promotes that the goal of the initiative is to encourage employers that currently maintain individually designed plans to convert to the pre-approved format.

The new program is:

Simplified by eliminating the distinction between M&P and VS plans

Liberalized by increasing the types of plans eligible for pre-approved status

Revised to offer greater flexibility in the design of pre-approved plans (Iekel, 2017)

401(k) Lawsuits Seek to Establish if Fees are Necessary and Reasonable

A best practice to mitigate the risk of a retirement plan lawsuit is to reduce, and eliminate where possible, revenue sharing arrangements. The structure of fiduciary liability under ERISA is that fees must be reasonable and necessary and that the plan must be constructed for the sole benefit of the participants.

For plan sponsors to reduce liability stemming from revenue sharing, they need to:

Understand all fees assessed by service providers

Determine the fees are reasonable for the services rendered

As a plan sponsor, it is a best practice to proactively benchmark and monitor all fees associated your retirement plan.